Document Sample
					                   NOT FOR PUBLICATION WITHOUT THE

                                           SUPERIOR COURT OF NEW JERSEY
                                           APPELLATE DIVISION
                                           DOCKET NO. A-3628-10T2

CAMERON, his wife,                           APPROVED FOR PUBLICATION

           Plaintiffs-Appellants,                     March 8, 2012

                                                   APPELLATE DIVISION



           Submitted December 7, 2011 - Decided March 8, 2012

           Before Judges      Axelrad,      Sapp-Peterson         and

           On appeal from the Superior Court of New
           Jersey, Law Division, Hunterdon County,
           Docket No. L-449-07.

           Pellettieri, Rabstein & Altman, attorneys
           for appellants (W. Barry Rank, on the

           Shimberg   &  Friel,   P.C., attorneys for
           respondent Wells Fargo Bank, N.A. (Anne E.
           Walters, on the brief).

           Respondent   Roy   B.   Ewing     has    not   filed       a

           The opinion of the court was delivered by

OSTRER, J.S.C. (temporarily assigned).

     This appeal presents the novel issue whether the stream of

payments   due   a   homeowner     under     a     home   equity          conversion
mortgage,      also   known       as   a   reverse     mortgage,      is   subject     to

execution and garnishment for the benefit of judgment creditors

of the homeowner.           The trial court determined the payments were

beyond the reach of the judgment creditors, and denied their

motion   to     compel      the    mortgagee      to   comply       with   a   writ    of

execution.      We reverse, reasoning the mortgagee's obligation to

make   monthly    payments        to   defendant,      the    judgment     debtor,     is

properly construed to be a "debt" against which plaintiffs, the

judgment creditors, may obtain an order directing execution and

garnishment under N.J.S.A. 2A:17-50 and -63 and Rule 4:59-1(c).

We remand for the court to determine the percentage of the debt

properly subject to execution.              N.J.S.A. 2A:17-56.


       The facts are undisputed.                Plaintiffs filed a complaint in

July 2007 against defendant seeking damages arising out of an

automobile accident.              Defendant was an uninsured driver.                   He

sought a trial de novo after an unfavorable arbitration award,

but the case settled after a pre-trial conference.                             Defendant

consented to entry of judgment against him for $400,000 on April

16, 2009.

       Two months before settling the case, defendant entered into

the reverse mortgage with Wells Fargo Bank, N.A. (Wells Fargo).

Defendant, then almost eighty-five years old, gave Wells Fargo,

a   mortgage    on    his    Lambertville        house   in    an    amount     "up   to"

                                            2                                   A-3628-10T2
$360,000.     Although we will analyze the terms of the transaction

in greater detail below, suffice it to say here that Wells Fargo

agreed to pay defendant $959.01 for as long as he lived and

resided in his house.

       Plaintiffs discovered the existence of the mortgage in the

course of post-judgment supplementary discovery.                            Defendant's

other income consisted of monthly Social Security benefits and a

modest     Pennsylvania        public    employee     pension.        On    plaintiffs'

behalf, the Hunterdon County Sheriff served a writ of execution

dated June 1, 2010, on Wells Fargo, levying against "monies due

to   defendant      from   a    reverse     mortgage       from    Wells    Fargo   Home

Mortgage."       After     Wells    Fargo       refused    to     comply,    plaintiffs

filed a motion in aid of litigants' rights                          on November 23,

2010, seeking an order compelling Wells Fargo to withhold the

monies due defendant under the reverse mortgage and pay them

over to the sheriff.

       Plaintiffs argued Wells Fargo's obligation to pay defendant

$959   a    month    was   a     "debt    due,"      and    therefore       subject   to

garnishment under N.J.S.A. 2A:17-63.                   Alternatively, plaintiffs

argued they were entitled to an order compelling defendant, as

judgment debtor, to pay over his reverse mortgage receipts in

regular     installments,        pursuant       to   N.J.S.A.      2A:17-64.        Wells

Fargo argued its monthly payments to defendant should not be

deemed property subject to garnishment under Rule 4:59-1.

                                            3                                  A-3628-10T2
    In a written decision dated March 4, 2011, the court agreed

the regular payments from Wells Fargo to defendant were not

subject to garnishment under N.J.S.A. 2A:17-63, nor to an order

for installment payments under N.J.S.A. 2A:17-64.                               The court

reasoned       the       reverse       mortgage         payments   to     defendant      were

properly characterized as loans from Wells Fargo to defendant,

secured       by       the   mortgage       on    the    house,    and    repayable      upon

defendant's death or other events described in the transactional

documents.             Thus, Wells Fargo was not indebted to defendant;

rather, defendant was indebted to Wells Fargo.

    The court rejected plaintiffs' arguments that the reverse

mortgage payments should be subject to execution because it was

simply    a    means         of   "freeing       up"    defendant's      interest   in    the

equity of the home; or, alternatively, the payments were, in

substance,         a    form      of   an   annuity      that   should    be   subject     to

execution.             The    court    also      held    that   because    Wells    Fargo's

payments to defendant were loans subject to repayment, they did

not constitute "income" subject to an installment order under

N.J.S.A. 2A:17-64.

    On appeal, plaintiffs argue:

               POINT ONE

               A WRIT OF EXECUTION.

                                                  4                                 A-3628-10T2
              POINT TWO

              PURSUANT TO N.J.S.A. 2A:17-64 THE COURT


       As this appeal presents an issue of law, our review is de

novo.     Manalapan Realty, L.P. v. Manalapan Twp. Comm., 140 N.J.

366, 378 (1995)("A trial court's interpretation of the law and

the legal consequences that flow from established facts are not

entitled to any special deference.").                      The issue presented is

whether      Wells    Fargo's      monthly       payment       obligation       under     the

reverse mortgage constitutes a "debt" subject to execution and

garnishment.         To answer this question, we consider the terms of

the reverse mortgage, and then construe the execution statute in

light of relevant case law and governing public policy.


       The    reverse       mortgage      transaction          is    embodied     in      four

principal documents: Home Equity Conversion Loan Agreement (Loan

Agreement),      Adjustable        Rate    Home     Equity          Conversion    Mortgage

(Mortgage),      Home       Equity     Conversion          Mortgage       Payment       Plan

(Payment Plan), and Note.1             The Mortgage secured repayment of the

debt    evidenced      by    the   Note,     up     to     a    principal        amount    of

    The note was not included in the record before us.

                                             5                                     A-3628-10T2
$360,000, at a variable interest rate initially set at 4.79

percent, subject to a 14.75 percent cap.                 The rate was expected

to average 5.17 percent according to the Payment Plan.

      Pursuant to the Payment Plan, defendant opted to receive,

and Wells Fargo agreed to pay defendant $959 a month during his

tenure in the house.          The Payment Plan provided a "Principal

Limit" for those payments of $116,633.                  Monthly payments under

the "tenure plan" that defendant selected, as opposed to a "term

payment    plan,"    were    still     based   on   a    projected     term,     and

provided for monthly payments calculated to equal the Principal

Limit when defendant reached 100 years of age.2                 Wells Fargo was

liable for a late charge of ten percent of the monthly payment

if it forwarded it to defendant late.                    The     Loan Agreement

provided    that     Wells   Fargo     would   withhold        from   defendant's

monthly payment amounts to cover property taxes and insurance.

In   addition   to    the    monthly    payments,       defendant     at   closing

received $20,000 as a cash advance, plus retained an additional

line of credit of $15,000.           Wells Fargo retained funds to cover

  We are unable to reconcile the provision of the "tenure payment
plan" in the Loan Agreement, which apparently provided defendant
payments for almost sixteen years, given his age of 84 years
when he entered the transaction; and the Payment Plan, which set
the monthly payment at a level where he would exceed the
Principal Limit in just over ten years ($116,633/$959=121.6).
However, defendant was permitted to change from the "tenure
payment plan" to the "term payment plan" whenever the Principal
Balance was less than the Principal Limit.

                                         6                                 A-3628-10T2
servicing fees, the discharge of liens of almost $26,000, and

closing costs of over $15,000, which included a $4800 fee to the

FHA and a $4400 loan origination fee.

       Defendant promised that all funds advanced would be repaid

upon   his   death.3   He   agreed   to   reside   in   the   house   and    to

maintain it.     Wells Fargo was authorized to accelerate the debt

and require full payment of all funds secured by the Mortgage if

defendant died, no longer lived in the house as his principal

residence, or breached another obligation of the Mortgage.                  The

payment obligation also ceased if defendant filed a petition in

bankruptcy.    The Loan Agreement and Mortgage include severability

clauses, providing that if any provision conflicted with State

or federal law, it shall be severed from the balance of the

agreement which shall be given effect.

       The debt secured by the Mortgage is non-recourse.                 Thus,

defendant has no personal liability for repayment.              Wells Fargo

  Defendant did not execute a Shared Appreciation Rider, which
would have granted Wells Fargo a partial interest in any
appreciation in the value of defendant's property upon sale.
See 24 C.F.R. 206.23 (under optional shared appreciation
provision, "the mortgagor shall pay an additional amount of
interest equal to a percentage of any net appreciated value of
the property during the life of the mortgage. The percentage of
net appreciated value to be paid to the mortgagee, referred to
as the appreciation margin, shall be no more than twenty-five
percent, subject to an effective interest rate cap of no more
than twenty percent."). We therefore assume defendant retained
sole interest in any appreciation of the property exceeding his

                                     7                                A-3628-10T2
is barred from obtaining a deficiency judgment, and is limited

to enforcing the debt through the sale of the property.


      A judgment creditor is entitled to obtain execution against

a debtor's "debts" as well as earned income, trust fund income,

and profits.

                  When a judgment has been recovered in
             the Superior Court, and where any wages,
             debts, earnings, salary, income from trust
             funds, or profits are due and owing to the
             judgment debtor, or thereafter become due
             and owing to him, to the amount of $ 48.00
             or more a week, the judgment creditor may,
             on notice to the judgment debtor unless the
             court otherwise orders, apply to the court
             in which the judgment was recovered, or to
             the court having jurisdiction of the same,
             and upon satisfactory proofs, by affidavit
             or otherwise, of such facts, the court shall
             grant an order directing that an execution
             issue against the wages, debts, earnings,
             salary, income from trust funds, or profits
             of the judgment debtor.

             [N.J.S.A. 2A:17-50 (emphasis added).]

See   also   R.   4:59-1(d)   (regarding   "issuance   of   an   execution

against wages, debts, earnings, salary, income from trust funds

or profits") (emphasis added).

      In the case of regular, recurring payments, the creditor is

entitled to a garnishment order.

                  After a levy upon a debt due or
             accruing to the judgment debtor from a third
             person, herein called the garnishee, the
             court may upon notice to the garnishee and
             the judgment debtor, and if the garnishee

                                    8                             A-3628-10T2
               admits the debt, direct the debt, to an
               amount not exceeding the sum sufficient to
               satisfy the execution, to be paid to the
               officer holding the execution or to the
               receiver appointed by the court, either in 1
               payment or in installments as the court may
               deem just.

               [N.J.S.A. 2A:17-63 (emphasis added).]

       Construing the term "debt" in the execution statute, our

former Supreme Court held that "debt" should be accorded not

only    its     ordinary         legal    meaning         as   "an     obligation      for       the

payment of money founded upon a contract, express or implied,"

but more broadly as "that which one person is bound to pay to

another under any form of obligation."                               Passaic Nat'l Bank &

Trust    Co.    v.    Eelman,       116    N.J.L.         279,   281     (Sup.     Ct.      1936).

"Whatever       the        law    enjoins        one      to     pay     takes       the      legal

classification of a debt."                  Id. at 282.              The court in Passaic

Nat'l    Bank    determined         that    a     "debt"       encompassed       a    municipal

police    officer's          pension       that       was      not     otherwise      expressly

exempted from execution.

       The court held that "debt" should be interpreted in light

of the Legislature's apparent intent in enacting                                 the       law on

execution.           The    meaning       "may       be   enlarged       or   restricted          to

effectuate the manifest reason and obvious purpose of the law."

Id. at 283.          The court concluded that the Legislature intended

to subject to execution not only earned income, but also other

installment obligations.

                                                 9                                         A-3628-10T2
                   Evidently, the legislative purpose was
              to include all obligations that, like wages
              and salaries, income from trust funds, and
              profits,    are     payable    in    periodic
              installments or stated sums at not less than
              the prescribed minimum rate.          It was
              patently not the intention to limit the
              operation   of   the   statute  strictly   to
              contractual obligations to pay for the
              judgment debtor's labor or personal service.


See also T. & C. Leasing, Inc. v. Wachovia Bank, N.A., 421 N.J.

Super.   221,       228    (App.   Div.    2011)       (stating       executions        under

N.J.S.A.      2A:17-50       pertain      generally       to    regularly          recurring

payments to the judgment debtor).

      Consistent          with   these    principles,          the     monthly       reverse

mortgage payments due from Wells Fargo are properly deemed debts

owing    to   defendant.           Federal       law    defines      the      Home    Equity

Conversion Mortgage to mean "a first mortgage which provides for

future payments to the homeowner based on accumulated equity[.]"

12   U.S.C.    §    1715z-20(b)(3).            The     recognized       purpose      of    the

transaction,        reflected      by    its     name,    Home       Equity       Conversion

Mortgage,      is    "to     permit      the     conversion       of     a     portion      of

accumulated home equity into liquid assets[.]"                               12    U.S.C.     §

1715z-20(a)(1).4          Our state's law authorizing issuance of reverse

mortgages      characterizes        the     payments       to     the        mortgagor      as

  Regulations governing federally insured Home Equity Conversion
Mortgages are set forth at 24 C.F.R. Part 206.

                                            10                                       A-3628-10T2
"income," although it exempts it from taxation as gross income.

N.J.S.A. 46:10B-20.         See also Assembly Banking and Insurance

Committee    Statement      to   A.1660       (1979)    (stating     that     reverse

mortgages, as authorized by L. 1979, c. 140, and codified at

N.J.S.A. 46:10B-16 to -21, "permit[] senior citizens to make use

of the equity which they have built up in their home. . . .                        The

senior citizen would . . . have his income supplemented while

still being able to live in his home.").5

        Although the payments are not earned income, they are a

regular and recurring obligation of Wells Fargo.                      It is of no

moment that defendant also is indebted to Wells Fargo and he or

his estate is ultimately liable to repay the monies received to

the extent repayment may be generated from sale of the property.

Wells     Fargo   remains     obliged     to     make     periodic        installment

payments    to    defendant      pursuant      to   the     terms    of    its   Loan

Agreement and Mortgage.

     We     recognize    that     "[a]    debt      which    is     uncertain      and

contingent, in the sense that it may never become payable, is

not subject to levy and sale."            Cohen v. Cohen, 126 N.J.L. 605,

610 (Sup. Ct. 1941) (holding widow's right to collect one third

of death benefit under husband's life insurance policy if she

   Although the Legislature expressly provided that reverse
mortgage proceeds were exempt from taxation as gross income,
N.J.S.A. 46:10B-20, the Legislature was silent on whether the
proceeds were exempt from execution or garnishment.

                                         11                                  A-3628-10T2
were alive on a date certain in the future was too uncertain and

speculative to be subject to levy and sale under execution law).

However, debts may be subject to execution "if liquidated and

certain in their existence[.]"                      Canger v. Froysland, 283 N.J.

Super. 615, 621 (Ch. Div. 1994).                     See also Passaic Nat'l Bank &

Trust Co., supra, 116 N.J.L. at 282 (stating that a debt must be

"for a sum certain, or a sum readily reducible to a certainty,"

that may be payable in a single amount, or in installments).                              In

this   case,     Wells    Fargo's        payment       obligation       is   certain     and

currently payable.

       Reading   "debt"     to     include          Wells   Fargo's     monthly    payment

obligation      to    defendant     is    also        consistent    with     the   general

policy favoring enforcement of judgments.                        "It is the general

policy of the law to lend the creditor all reasonable assistance

for the enforcement of his claim, especially against a debtor

who, though possessed of the means to pay, seeks to evade his

obligation."         Id. at 286.

       Nor is execution barred by defendant's agreement not to

assign    his    rights     under        the        Loan    Agreement    and   Mortgage.

Execution and garnishment do not depend on defendant personally

assigning    his      rights.      Also,        the    non-assignment        covenant     is

ineffective to bar execution and garnishment notwithstanding the

oft-stated general rule that a test of liability to garnishment

or execution "is whether it is the subject of assignment."                               Id.

                                               12                                  A-3628-10T2
at 286.       See also Seventy-First Street and Broadway Corp. v.

Thorne, 10 N.J. Misc. 99, 104 (Sup. Ct. 1932)(applying rule to

shield pension payments from garnishment); Sears, Roebuck & Co.

v. Romano, 196 N.J. Super. 229, 236-37 (Law Div. 1984) (applying

rule as alternative basis to shield from execution unexercised

overdraft privileges).           But see Otten v. Cavalli, 14 N.J. Misc.

296, 296-97 (C.P. 1936) (distinguishing Seventy-First Street and

Broadway      Corp.,    supra,    and   Passaic         Nat'l    Bank   &   Trust   Co.,

supra, stating "it is the inherent nature of the claim itself,

and   not     any    peculiar    inter-party          restrictions"     that   governs

whether garnishment is permitted).                    Absent a statutory exemption

or    other     clear        countervailing           public     policy,     the    non-

assignability rule does not extend so far that it shields from

execution and garnishment payments from a source the judgment

debtor created.

       We thus treat the non-assignment clause as we have treated

restrictions on alienation in self-settled spendthrift trusts.

"'Where a person creates for his own benefit a trust with a

provision restricting the voluntary or involuntary transfer of

his    interest,       his    transferee         or    creditors     can    reach     his

interest.'"         Aronsohn & Springstead v. Weissman, 230 N.J. Super.

63, 68 (App. Div. 1989) (quoting Restatement (Second) on Trusts,

§    156(1)    (1959)).        See   also    N.J.S.A.          25:2-1(a)    (except    as

provided, "every conveyance, transfer and assignment of goods,

                                            13                                 A-3628-10T2
chattels or things in action, made in trust for the use of the

person making the same, shall be void as against creditors").

      In Aronsohn & Springstead, supra, 230 N.J. Super. at 67-68,

we extended that principle to a Keogh account, notwithstanding

the   anti-alienation       provision    of    federal     law,   26   U.S.C.    §

401(a)(13)(A).     We found the anti-alienation provision did not

forbid involuntary alienation by execution under state law, as

the provision only provided for negative tax consequences if

alienation occurred.        Id. at 67.        We are unaware of any federal

or state law or regulation that expressly limits assignment or

execution against the payments under a Home Equity Conversion

Mortgage, nor have the parties cited one to us.

      The   same   public    policy     that    impelled    our   decision      in

Aronsohn & Springstead applies here.              Denying plaintiffs relief

would allow defendant to continue to enjoy all the benefits of

owning a home, while placing even the monthly payments generated

thereby beyond the reach of his creditors.                 "'Creditors of the

sole beneficiary of a self-settled spendthrift trust may satisfy

their claims against the beneficiary . . . because it is against

public policy to permit a person to tie up property in such a

way that he can enjoy it but prevent creditors from reaching

it.'"    Id. at 69 (quoting Rayndon & Anderson, "Attachment of

Keogh Plan Assets - A Confusion in the Law and the Courts," 61

Taxes 525, 530-31 (1983)).

                                        14                              A-3628-10T2
       While      we    have        found    no     published         opinion     specifically

addressing        whether       a     reverse           mortgage's      payment     stream     is

subject to execution and garnishment, we find support for our

conclusion in a federal appeals court's decision that a line of

credit is subject to execution on behalf of judgment creditors

once the credit line is exercised.                             In re Southwestern Glass

Co.,   332       F.3d    513,       518     (8th    Cir.       2003)    (judgment      creditor

entitled to writ of garnishment against bank holding proceeds of

advances against judgment debtor's line of credit); cf. Sears,

Roebuck      &    Co.     v.    Romano,        supra,          196   N.J.    Super.     at    236

(overdraft        privileges          not     subject          to    garnishment      where    no

debtor-creditor relationship had yet been created by a draft on

the account).            The monthly payments under defendant's reverse

mortgage has some attributes of an exercised line of credit. Just

as    the   recipient          of    a    line     of     credit       is   indebted    to    the

financial        institution         extending          it,    defendant     is   indebted     to

Wells Fargo as he receives payments, drawing down credit against

his    overall          payment          limit.           Nonetheless,        the     financial

institution that has agreed to provide its customer a line of

credit is obligated to honor drafts against the line, making the

financial institution indebted to its customer, and subjecting

to    execution        the     exercised       line       of    credit.         Likewise,     the

monthly payments Wells Fargo is obligated to make are subject to


                                                   15                                  A-3628-10T2
    We also find unpersuasive Wells Fargo's argument that its

payment     obligation     to    defendant       should    not    be     subject      to

execution and garnishment because defendant is obliged to repay

the amounts advanced to him.           As we have observed, defendant may

be indebted to Wells Fargo at the same time Wells Fargo is

indebted    to     defendant.        Wells       Fargo    minimizes      the    unique

attributes of a reverse mortgage that distinguish it from a

typical    loan.        Defendant    is    not    personally     liable        for   any

advances.      Assuming no breach or relocation from the home, his

repayment    obligation     arises     only      after    his   death.         Finally,

Wells Fargo is secured.           As federal law states, the transaction

enables an elderly homeowner to convert his or her home equity

into a liquid asset.            12 U.S.C. § 1715z-20(a)(1).              It is that

asset   that     plaintiffs     as   judgment      creditors     are   entitled       to


    Although we find that monthly reverse mortgage payments are

subject to execution and garnishment, the court on remand must

determine the percentage of the payments that will be subject to

execution and garnishment, in accordance with the limitations

set forth in N.J.S.A. 2A:17-56.                  See Zavodnick v. Leven, 340

N.J. Super. 94, 103 (App. Div. 2001).

    Turning        to   plaintiff's       alternative      request     for      relief,

N.J.S.A. 2A:17-64 empowers a court to order a judgment debtor

                                          16                                   A-3628-10T2
himself    or     herself        "to   make   payments       at    stated    periods   in

installments" from "rights and credits" due the debtor.

                 If it is made to appear that the
            judgment debtor is entitled to, or is in
            receipt of, an income or any property or
            money or things in action, or rights and
            credits, including such income as is derived
            from federal, state, county, municipal or
            other governmental sources, but not income
            or property as is recovered or exempt by
            law, the Superior Court may direct the
            judgment debtor to make payments at stated
            periods in installments, and upon such terms
            and conditions as the court may direct, out
            of the same, on account of the unsatisfied

            [N.J.S.A. 2A:17-64 (emphasis added).]

    The trial court determined plaintiffs were not entitled to

relief    under     N.J.S.A.       2A:17-64        because    the    reverse    mortgage

payments    to    defendant        were    not     "income"       under   the   statute.

However, as we have decided, the payments are nonetheless debts.

Therefore, they qualify as                "rights and credits."             See N.J.S.A.

2A:17-57 (defining "rights and credits" to include among other

things "debts").

    An      order        under    N.J.S.A.       2A:17-64     is     directed   at     the

judgment debtor.           Household Finance Corp. v. Clevenger, 141 N.J.

Super. 53, 55-56 (App. Div. 1976).                    The remedy pre-existed the

adoption of the statute authorizing garnishment of wages and

debts.      Id.     at    56.      The    statutes     must       nonetheless   be   read

together.       Id. at 57-68.          Thus, an order to pay in installments

                                              17                                A-3628-10T2
under N.J.S.A. 2A:17-64 is subject to the percentage limitations

found in N.J.S.A. 2A:17-56.      Id. at 58.      The court may exercise

its   discretion   in    determining     the   "terms   and    conditions"

governing the judgment debtor's installment payment obligation.

Finally, the court may not order both a garnishment order and an

installment   order   under   N.J.S.A.   2A:17-64.      Id.   at   58.     We

presume plaintiffs prefer an order providing for garnishment,

compelling payment by Wells Fargo, to which it is entitled.

      Reversed and remanded for further proceedings consistent

with this opinion.      We do not retain jurisdiction.

                                   18                               A-3628-10T2